Hollande Seeking $10.6 Billion From Diesel Irks Carmakers

Photographer: Andrey Rudakov/Bloomberg

Smog in European cities is blamed for premature deaths, ailments from asthma to heart disease and increased health costs. Close

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Photographer: Andrey Rudakov/Bloomberg

Smog in European cities is blamed for premature deaths, ailments from asthma to heart disease and increased health costs.

As heat waves blanket France this summer, pollution made worse by diesel exhaust is adding to the woes of sweaty Parisians.

For six days in July, smog levels hit “highs,” according to Airparif, which monitors air quality around the French capital. Among the culprits: emissions from engines running on diesel, by far the most widely used fuel for vehicles in France and the focus of growing debate about whether it should continue to be taxed less than gasoline.

“Pollution levels around Paris are worrying,” Karine Leger, deputy head of Airparif, said in an interview. “Widespread reliance on diesel is hurting our ability to improve the situation.”

Smog in European cities is blamed for premature deaths, ailments from asthma to heart disease and increased health costs. Diesel, which emits more of some pollutants, has been taxed less than gasoline for decades in France as successive governments sought to appease truckers and farmers.

Over the years, French carmakers like PSA Peugeot Citroen (UG) and Renault SA (RNO) developed more-efficient car engines that run on diesel so consumers could benefit from the cheaper fuel. The fuel market became progressively skewed with almost three quarters of new cars sold in France running on the fuel.

Now, the government of President Francois Hollande -- struggling to shrink its budget deficit -- may use a proposed carbon-tax mechanism to raise the levies on diesel to match those for gasoline, which over time may bring about 8 billion euros ($10.6 billion) into state coffers annually.

Not Welcome

The proposal, backed by environmental groups, has drawn the ire of France’s struggling car industry, turning the issue into a political hot potato for the governing Socialists and their Greens allies.

“An increase in diesel taxes wouldn’t be welcome,” Renault Chief Operating Officer Carlos Tavares said last month. “Anything that could weaken the French market would weaken Renault.”

Peugeot, which claims its diesel engines use catalysts to bring particulate and nitrogen oxide emissions in line with European standards, says fiscal measures to discourage the fuel’s use are unlikely to improve air quality.

“Raising taxes on diesel won’t have environmental benefits,” said Chief Executive Officer Philippe Varin this week.

Airparif’s Leger disagrees.

“Any move to balance the price of diesel and gasoline would go in the right direction to lower pollution,” she said.

Divided Government

The prospect of a higher diesel tax has divided the government. Industry Minister Arnaud Montebourg warned France shouldn’t refill state coffers with a move that may hurt local carmakers, while Former Environment Minister Delphine Batho backed the move on health grounds. Her successor Philippe Martin also supports a “convergence” of the taxes.

Temperatures in Paris hit a high in July of 35 degrees celsius (95 degrees Fahrenheit) and are set to touch that level today as many of the city’s residents set out on their traditional, annual August holiday.

During heat waves, ozone pollution is caused by sun-induced chemical reactions between pollutants coming from car exhaust, including from diesel engines.

Airparif says even when the French capital doesn’t live through heat waves, Parisians suffer from “chronically high levels” of pollutants such as nitrogen dioxide and particulates, which diesel engines produce in greater quantities.

Diesel Blamed

A general lowering of pollution levels in the French capital in the past decade was counterbalanced by a rising proportion of diesel vehicles, according to a report published by Airparif last month on air quality between 2002 and 2012.

“Greater use of diesel offset a trend towards less pollution and can be blamed for why levels didn’t improve more,” the report concluded.

Over the 10-year period of the study, the proportion of diesel engines plying Parisian roads compared with those running on gasoline went to 63 percent of total kilometers driven from 41 percent. Paris’s 900 kilometers of roads are the city’s biggest source of pollution even though traffic has fallen.

Gasoline levies in France are about 86 cents a liter compared with 66 cents for diesel, according to European Commission statistics for the week of July 19. The rush to diesel is being driven by cost -- currently about 20 centimes a liter cheaper than gasoline on lower taxes -- and greater fuel efficiency. That’s even though most diesel-engine cars cost more.

Gradual Reduction

With diesel making up about 80 percent of the 50-billion-liter-a-year French vehicle fuel market, raising taxes to the level of gasoline would bring about 8 billion euros into state coffers annually, according to oil lobby Union Francaise des Industries Petrolieres.

“We favor a gradual reduction in the tax gap,” Jean-Louis Schilansky, head UFIP, said in an interview. The group represents refiners including Total SA (FP) and Exxon Mobil who have long complained that a favorable pricing policy for diesel has created a supply imbalance for the struggling local crude-processing industry. That has resulted in the need for imports from countries like Russia since refiners are limited by how much diesel they can extract from a barrel of crude oil.

Meanwhile, a three-year study of 25 European cities from Bucharest to Dublin -- and including Paris -- that have a total of 39 million dwellers showed that air pollution has “damaging” effects on public health.

‘Chronic Problems’

High degrees of fine particulates in these areas -- surpassing World Health Organization levels -- results in 19,000 deaths annually and 31.5 billion euros in health and related costs, according to the report by Aphekom, a European network of public-health research institutions.

France has been put on notice by the European Commission for not respecting rules on emissions of PM10, which refers to particulates less than 10 micrometers in diameter, and the same will “soon” be true for nitrogen dioxide, according to Leger.

“There are chronic problems with the air we breathe,” she said.

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net; Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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